This chapter argues that a more nuanced understanding of Indonesia's economic crisis can be gained by differentiating between the sources of 'vulnerability' and the 'precipitating' factors. The roots of the crisis can be traced back to the mid-1980s, when Indonesia embarked on an ambitious economic reform program. On January 27, 1998, with their backs against the wall, both the International Monetary Fund (IMF) and the Indonesian government took steps to deal with the banking sector problems. In the ensuing weeks, as the embattled Suharto vacillated and stalled, the economic downturn deepened and the Indonesian economy was brought to the brink of total collapse. Liquidity support to the banking sector continued to increase in large part to meet the continuing deposit withdrawals. Moreover, as part of Indonesia's commitments to the IMF, the government took steps to review and strengthen the prudential and regulatory framework of the banking system.

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